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    Campbell's Co (CPB)

    Q3 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$44.18Last close (Jun 4, 2024)
    Post-Earnings Price$43.25Open (Jun 5, 2024)
    Price Change
    $-0.93(-2.11%)

    What went well

    • The company expects EBIT growth in the 30% range in Q4, leading to strong EPS growth and margin expansion across the board.
    • Anticipates the Snacks business to fully recover in the first half of fiscal 2025, with volume trends improving.
    • The Meals & Beverages segment is showing positive signs, with the soup business recovering and moving into positive territory in both units and dollars, supporting a favorable profit trajectory.

    What went wrong

    • Campbell is experiencing increased competition in its Snacks segment, with pressure from private labels leading to a slowdown in sales among lower and middle-income consumers. The recovery in this segment is expected to be delayed into the first half of fiscal 2025, which is six months later than originally anticipated.
    • The company's condensed soup business is facing competitive pressure from private labels, leading to trade-down by consumers and a category decline of about 4%. Campbell has had to fine-tune its pricing strategy to address this challenge, indicating vulnerability in its core product lines.
    • There is potential risk of overpricing in the current economic environment, as consumers are burdened by inflation. Campbell acknowledges the need to monitor price gaps and increase promotional activity, which could pressure margins and affect profitability.

    Q&A Summary

    1. Margin Expansion Outlook
      Q: What's driving the acceleration in gross margins into Q4 and beyond?
      A: Mark Clouse explained that they expect significant gross margin expansion in Q4 due to cycling a tough prior-year quarter. Productivity gains, supply chain improvements, and recovery in the soup business will lead to a 30% EBIT growth and strong EPS growth.

    2. Confidence in FY25 Recovery
      Q: What gives you confidence in a full recovery in first half of '25 despite lowering '24 forecast?
      A: Mark Clouse believes the recovery will occur as the Snacks business cycles through consumer adjustments. With categories normalizing and strong execution, he expects improvement in the first half of FY25, although it may be 6 months later than desired.

    3. Pricing Strategy and Consumer Impact
      Q: Do you worry about overpricing and need for price rollbacks given consumer burden?
      A: Mark Clouse doesn't see significant overpricing yet but acknowledges the need to monitor price gaps and remain competitive through promotions. They plan to maintain reasonable price gaps without drastic price reductions.

    4. Rao's Growth Opportunity
      Q: How should we think about Rao's as a growth engine moving forward?
      A: Mark Clouse is very positive about Rao's integration, noting that all assumptions have been validated or exceeded. They see upside in deal economics, business health, innovation, and synergies, and plan to share more details at the Investor Day in September.

    5. Snacks Segment Price/Mix Outlook
      Q: What should we expect from price/mix in the Snacks segment over the next quarters?
      A: Mark Clouse expects to remain competitive with continued promotions, investing around 100 basis points in promotional activity in Q4. They aim to maintain value through innovation and marketing without drastically reducing prices.

    6. Meals & Beverages Pricing Down 1%
      Q: Why was pricing down 1% in Meals & Beverages, and what's the outlook?
      A: Mark Clouse explained they've adjusted price gaps to remain competitive, especially in condensed soup where private label had gained share. Strategic pricing and promotions have stabilized share while maintaining healthy gross margins.

    7. Foodservice as a Growth Driver
      Q: How is foodservice a source of upside in Meals & Beverages?
      A: Supply chain improvements have expanded capacity, allowing growth in snacks and frozen soup in foodservice channels. Increased demand for frozen soup as a menu item is supporting growth in this segment.

    8. Snacks Segment Tailwinds
      Q: Are you seeing any benefit from potential tailwinds in Snacks?
      A: Mark Clouse is optimistic, citing a 3-year CAGR of 8% in the third quarter and improving trends in recent weeks. He doesn't see structural changes in snacking demand and believes their portfolio is well-positioned in elevated segments less affected by private label.

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